SunTrust’s stock price plunges 18%

Atlanta-based SunTrust and other U.S. banks saw stock prices drop sharply Tuesday amid fears that the financial sector remains vulnerable despite massive government intervention.

Shares in SunTrust, Georgia’s largest bank, tumbled 18 percent, to $7.11 per share. In the past year, SunTrust shares have lost 88 percent of their value.

Wall Street is valuing the company at $2.5 billion, about 15 percent of its book value, said Bert Ely, a veteran bank industry consultant in Alexandria, Va. Ely said problems with some of the nation’s biggest banks, such as Bank of America, have infected the industry at large, dragging down SunTrust and other regional banks.

“When you see banking companies, which are fundamentally strong regional banking companies, selling at 15 percent of book value, you know it’s just an over-reaction,” he said, suggesting SunTrust may be a target for bargain hunters.

SunTrust’s stock price has been so devalued that the bank’s entire market capitalization — $2.5 billion — is far less than the $4.85 billion the federal government has invested in the company over the past few months.

Experts trace the selloff of bank stocks to the continued fallout from the Obama administration’s plan to bail out the troubled financial industry — a proposal widely criticized last week as short on details.

The plan calls for a mandatory “stress test” for the nation’s biggest banks, including SunTrust. Banks having problems but deemed worthy of surviving would receive another injection of capital from the government, raising fears that some institutions could be partially nationalized, said Jeff Davis, a banking analyst for Howe Barnes, a Chicago-based brokerage firm.

“Wall Street hates uncertainty,” he said. “The only real solution for this is the regulators have got to get going and shut the broke banks. They’re going to have to play God with a large percentage of banks that are in the ‘gray zone.’ “

Other bank stocks that dropped Tuesday include Bank of America, down 11 percent, and Huntington Bancshares, a regional bank based in Columbus, Ohio, down 22 percent.

Meanwhile, shares of Aflac plunged nearly 14 percent Tuesday after a Wall Street firm downgraded the Columbus-based supplemental insurer to “market perform” from outperform.

Friedman, Billings & Ramsey also lowered its target price on Aflac to $20 from $46 per share, citing the company’s debt holdings of foreign governments and the recession in Japan, which accounts for roughly 75 percent of business. It’s the third analyst downgrade since January on Aflac.

Aflac declined comment.

Its shares, which have fallen 70 percent during the past year, closed Tuesday at $17.64, down $2.86